Broadband Caps: Maybe It's Not Just About TV

March 18, 2011

Broadband caps have become a reality at many of the large ISPs, with Comcast having a cap since 2008 and AT&T adding one in the coming months.

Charter also has one, which leaves Cablevision, Verizon, and Time Warner Cable as question marks. Verizon's Dick Lynch, however, has explored the possibility of wireline data caps, and judging by comments from Time Warner Cable CEO Glenn Britt earlier this month, some kind of consumption-based broadband pricing is coming. When asked about caps directly, a Time Warner Cable spokesman says the company doesn't have "anything to announce now regarding caps." Verizon doesn't have any plans but will continue to evaluate the issue.

As caps proliferate, however, it's worth examining the repercussions, even those of a cap that allows someone to download 150 GB to 250 GB per month—the equivalent of streaming videos for 250 hours, or about 10.5 days. In my house, we use about 40 GB per month, while my colleague Darrell uses about 150 GB per month. AT&T says its average DSL user consumes about 18 GB per month, while Comcast claims its median usage (the usage falling in the middle as opposed to an average) is 6 GB per month.

Comcast, however, has seen its median creep up, and I personally saw my broadband use rise after I brought an iPad into my home.At the time, Comcast spokesman Charlie Douglas said the usage of more devices inside the home was bringing up the median.Of course, there's also Netflix, which now accounts for 61 percent of streaming movies, according to the NPD Group, and about 20 percent of all broadband traffic, according to Sandvine.

Why the Gigabytes Will Add Up

Netflix has become the ISPs' favorite whipping boy and will soon be the stated reason caps are implemented. The opportunity to protect the lucrative pay TV business is important, but there are future repercussions and maybe even a monetization strategy that goes beyond protecting pay TV. It would ensure broadband providers can monetize the next wave of the Internet as mobility and connected devices proliferate. Right now, it may seem crazy to imagine a home connection using 250 GB per month, but if one imagines a family of four, each with a tablet, maybe a Roku box, some music streaming, and a connected home automation system, those gigabytes may add up.

For example, when offering customers a warning about excessive use, cable ISP Suddenlink reportedly sent letters warning customers that perhaps they were streaming music while not in a room, which could result in heavy usage. Having background music playing, however, isn't a far-fetched usage scenario, and most people tend to gravitate toward streaming services on their connected sound systems. For example, Tom Cullen of Sonos told me that more than 50 percent of the sound system's customers use streaming music services as opposed to listening to their own music libraries. Streaming an hour of Pandora uses 56.25 MB per hour, assuming a 128 Kbps streaming rate, so to use up 1 GB, one would have to stream about 20 hours of music.

As more of these services come online, as Om predicts, those caps won't look as generous. With casual video conferencing through FaceTime, Skype, or other chat services, it's not crazy to think people will be broadcasting more and more of their lives and maybe even lifestreaming from their homes among a select group of people. For example, I'd love to have a continuous lifestream from the GigaOM home office I could flip to in order to chat with colleagues, and I wouldn't mind offering them the same, even though it would require me to change out of my sweats. FaceTime requires a mere 90 MB per hour, but if I used it for streaming my work each day, I'd rack up about a gigabyte each day in FaceTime alone 22 days of the month.

The point here is that while a 250 GB cap seems reasonable for many today, in perhaps as little as two years it won't be. And by then, carriers will have consumers trained to think of broadband as a capped or consumption-based service as opposed to an all-you-can-eat buffet. Comcast has said it will raise the cap as usage levels rise, but there's no guarantee. AT&T actually has an incentive to keep that cap at 150 GB since it will charge overage fees. (Comcast just cuts off service after a person exceeds the cap multiple times.) So while the urge to prevent Netflix and other streaming services from competing with pay TV is a likely goal of these caps, they are also training the consumer to consider broadband limits, which may in turn limit innovation and new applications.